Turning Climate Action Into a Competitive Advantage

Investors are taking notice. Even as overall venture capitalist investment cooled, green fintech startups captured nearly $2 billion in funding in 2023, analysts from Tenity found. Looking ahead, the sector is forecasted to enjoy a 22% compound annual growth rate through the eve of the 2030 deadline to reduce emissions and limit global warming, according to Global Market Estimates.

To understand where the industry stands and its future, consider these three approaches, which show how companies can align climate goals with financial performance.

1. Monitor Emissions and Access Capital

You can’t improve what you don’t measure. That’s why tracking emissions is essential for sustainability efforts. But for smaller businesses and organizations with complex value chains, carbon accounting can be challenging.

Green fintech is changing that.

Take the enterprise sustainability platform from Watershed, for example. It uses a flexible API to collect relevant business data, machine learning to categorize the information, and a specialized sustainability data engine to help calculate emissions, including those in the value chain.

While these kinds of tools help streamline carbon footprint reporting and plan reduction efforts, they also offer a potential financial edge. Accurate carbon accounting could help organizations access cheaper capital, as signs point to a trend that climate-conscious companies may enjoy preferential interest rates.

A study from the European Central Bank found that eurozone banks tend to charge high-polluting companies interest rates about 0.14% higher than lower emitters. Even climate pledges carry weight: Companies that have committed to reducing emissions enjoy better rates on average than those that haven’t. And the benefits persist during periods of restrictive monetary policy, when banks tend to tighten credit more for high-emission firms than their low-emission counterparts.

If this trend accelerates, the financial case for sustainability efforts will only grow stronger. 

2. Fund Solutions and Mitigate Risk

Cutting emissions is critical, but it’s no longer enough. “People are beginning to realize there’s no credible path to net zero without carbon removal,” says Brennan Spellacy, CEO and co-founder of Patch.

Spellacy hoped to work in low-carbon energy after studying chemical engineering. But finding that most job opportunities were in the oil and gas industry, he pivoted to programming and went on to build Patch to help scale climate solutions.

Patch positions itself as a gateway to the global carbon market, providing users with a platform to source, purchase and manage high-integrity carbon credits. According to its website, the company pulls together details on nature-based, engineered and hybrid climate solutions and uses AI alongside industry experts to vet their quality. By collecting project information, pricing and availability in one place, Patch promises to bring transparency and simplicity to what was once a complex and opaque process.

While channeling capital into climate action, purchasing carbon credits also helps organizations achieve a range of business goals, such as meeting vendor expectations, supporting employee retention, and signaling an innovative edge to the market, Spellacy explains.

But there’s another way to think about carbon credits: risk mitigation.

As companies rush to meet 2030 climate targets, there’s a possibility that a growing demand for high-integrity carbon credits will drive up prices. In that light, buying them today is a step towards sustainability, as well as a strategic hedge. Early purchases could help lock in lower costs, cushion against future regulations and prepare for looming carbon tariffs, all while funding climate solutions that reduce the chance of environmental catastrophe.

3. Inspire Action and Engage Customers

Banks offer a one-of-a-kind pathway to motivate widespread climate action. Their customer-facing apps connect with millions of people who are mulling over their spending habits — that’s a direct line to influence behavior.

Connect Earth taps into this potential by helping financial services firms deliver insights to individuals and businesses on how their spending impacts the planet.

Buying a coffee? Bulk ordering materials for your small business? The platform uses an embedded carbon measurement tool to convert transaction data into emission estimates.

Similar to Watershed, Connect Earth leverages a powerful mix of APIs and AI. It pulls data from trusted sources, such as the Environmental Protection Agency and the United Nations, and uses a fine-tuned model to categorize complex transaction data. The result is actionable, high-quality, location-specific information.

The goal is not to guilt-trip, says Alex Lempka, co-founder and CEO of Connect Earth. It’s to help motivate change. To that end, the platform offers users benchmarks and tailored suggestions. It shows them where they’re succeeding and how they can improve.

For financial firms, this is a powerful tool for customer engagement and retention. It gives climate-conscious customers the information they crave. It also steers customers to use the bank for green spending, like installing solar panels. Then there are the cost-saving benefits for banks. The platform helps them identify where to focus green financing, matching loans to customers without expensive manual analysis.

The upshot is a business-savvy method for scaling action. As Lempka puts it: “You can drive collective decarbonization across millions of consumers at once.”

Quarterly Benefits With Long-Term Rewards

Some financial leaders reading about climate fintech may flinch at recent memories of “greenwashing” scandals. Just a few years ago, organizations that overpromised and underdelivered on environmental claims angered customers and ended up in court.

While the public backlash reinforced the importance of accountability, it may have also contributed to a counter-trend: “greenhushing.” That’s when organizations keep quiet about sustainability efforts to avoid scrutiny.

At the end of the day, neither silence nor spin will move the needle for the planet or business. The good news is that green fintech has carved out a pragmatic middle path. New tools make climate action more transparent. They give companies the confidence to act. And they ground sustainability efforts in dollars and cents.

“Environmental stewardship and business excellence must go hand in hand," says Ninan.“Empowered by innovation and data, forward-looking organizations are proving that doing what’s right is also what drives results.”